# Multiple Choice: Exchange rate

1) Currently, $1 will buy C$1.36 while $1.10 will buy ?1. What is the exchange rate between the Canadian dollar and the euro?

A. C$1 = ?1.10

B. C$1 = ?.9091

C. C$1 = ?1.2364

D. C$1.36 = ?1.10

E. C$1.36 = ?.9091

2) Assume that you can buy 245 Canadian dollars with 100 British pounds. How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S. dollars?

Country---------U.S. $ Equivalent----------Currency per U.S. $

Canada----------------?---------------------------1.3500

U.K.-----------------1.8305---------------------------?

A. $0.86

B. $0.93

C. $1.09

D. $1.37

E. $1.55

3) In the spot market, $1 is currently equal to A$1.42. The expected inflation rate is 3 percent in Australia and 2 percent in the U.S.. What is the expected exchange rate one year from now if relative purchasing power parity exists?

A. A$1.4058

B. A$1.4062

C. A$1.4286

D. A$1.4342

E. A$1.4484

4) You are expecting a payment of C$100,000 four years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Canada. The inflation rate is 3 percent in the U.S. and 2 percent in Canada. The current exchange rate is C$1 = $.72. How much will the payment four years from now be worth in U.S. dollars?

A. $68,887

B. $69,191

C. $69,300

D. $72,222

E. $74,953

5) Which of the following statements are correct concerning the foreign exchange market?

I. The trading floor of the foreign exchange market is located in London, England.

II. The foreign exchange market is the world's largest financial market.

III. The four primary currencies that are traded in the foreign exchange market are the U.S. dollar, the British pound, the Canadian dollar, and the euro.

IV. Importers and exporters are key players in the foreign exchange market.

A. I and III only

B. II and IV only

C. I and II only

D. III and IV only

E. I and IV only

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#### Solution Preview

1) Currently, $1 will buy C$1.36 while $1.10 will buy ?1. What is the exchange rate between the Canadian dollar and the euro?

A. C$1 = ?1.10

B. C$1 = ?.9091

C. C$1 = ?1.2364

D. C$1.36 = ?1.10

E. C$1.36 = ?.9091

Answer: E. C$1.36 = ?.9091

$1.1= ? 1

Therefore $1 = ? 0.9091

$1= C$ 1.36

Therefore C$ 1.36= ? 0.9091

2) Assume that you can buy 245 Canadian dollars with 100 British pounds. How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S. dollars?

Country---------U.S. $ Equivalent----------Currency per U.S. $

Canada----------------?---------------------------1.3500

U.K.-----------------1.8305---------------------------?

A. $0.86

B. $0.93

C. $1.09

D. $1.37

E. $1.55

Answer: A. $0.86

1 US$= 1.35 C$

1 ...

#### Solution Summary

Answers Multiple Choice questions on Exchange rate, triangle arbitrage, relative purchasing power parity, inflation, foreign exchange market.

Multiple Choice Questions:

25.The floor value for a convertible bond is:

A.the conversion value

B.the conversion price

C.The strike price

D.the pure bond value

26.The bonds of Goniff Bank & Trust have a conversion premium of $90. Their conversion price is $20. The common stock price is $16.50. What is the price of the convertible bonds?

A.$915

B.$825

C.$950

D.$875

Table 16-1

Assume the par value of the bonds in the following problems is $1,000 unless otherwise specified.)

Based on the following, please answer questions 27-29:

The Pioneer Petroleum Corporation has a bond outstanding with an $85 annual interest payment, a market price of $800, and a maturity date in five years. Find the following:

27.From table 16-1, What is the coupon rate?

A.10.62%

B.8.5%

C.14.2%

D.9.5%

28.From table 16-1, What is the current rate?

A.8.5%

B.14.2%

C.9.5%

D.10.62%

29.From table 16-1, What is the approximate yield to maturity?

A.8.5%

B.9.5%

C.14.2%

D.10.62%

30.What is the current yield on the following bond:

Bond X pays $95 annual interest and has a market value of $900. It has 10 years to maturity.

A.10.56%

B.10.33%

C.10.12%

D.10.00%

31.Which of the following types of voting includes minority shareholders?

A.Preferred

B.Majority

C.Cumulative

D.None of the Above

32.If a corporate charter says that current stockholders must be given the first option to purchase new stock, then that is a __________ rights offering.

A.Rights-on

B.Ex-rights

C.No-Rights

D.Pre-emptive

33.Securities that have a mandatory dividend are:

A.Bonds

B.Preferred Stock

C.Common Stock

D.none of the above

34.Which of the following have ownership interest in the firm?

A.Bondholders

B.Preferred stockholders

C.Un-Preferred stockholders

D.Common stockholders

35.A typical merger premium is between what?

A.20%

B.20-40%

C.60-80%

D.40-60%

36.The acquisition of buyers or sellers of goods and services to the company best explains a Horizontal Merger.

A.True

B.False

37.Suppose the Mexican peso is selling for $0.0881 and an Irish punt is selling for $1.5035. What is the exchange rate (cross rate) of the Mexican peso to the Irish punt? That is, how many Mexican pesos are equal to an Irish punt?

A.15.035

B.11.351

C.17.07

D.16.07

38.Which of the following best explains a Spot exchange rate

A.An exchange rate established for future delivery

B.An exchange rate for the country of Spot

C.The exchange rate at which the currency is traded for immediate delivery.

D.An exchange rate where which is traded for delivery whenever.

39.What does OPIC stand for

A.Other peoples Investment Company's

B.Overseas Private Investment Corporation

C.Outdoor Private Investment Corporation

D.Outcome Provided Investment Costs

40.The Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF).

Spot $0.7642

30-day forward $0.7670

90-day forward $0.7723

180-day forward $0.7728

Suppose you executed a 90-day forward contract to exchange 100,000 Swiss francs into U.S. dollars. How many dollars would you get 90 days hence?

A.$77,280

B.$76,700

C.$76,420

D.$77,230